Cellular baseband technology continues to be a key strategic component for players with long-term ambitions in the smartphone and tablet markets and NVIDIA's announcement today that it will acquire Icera for US$367 million just confirms that. 2011 is proving to be a real turning point for NVIDIA and the company has already made several important moves to give itself a fighting chance in the mobile computing market. Firstly, the company set a strong product roadmap for its Tegra products. Secondly, the company scored an important design-win with Microsoft to make its ARM-based processors compatible with Microsoft's next generation Windows platform. Finally, today, the company acquired Icera, a baseband company to fill a gaping hole in its mobile strategy. 
 
Both NVIDIA and Icera have highly complementary assets with no product overlap at all. Both companies are heavily focused on addressing the leading-edge device markets; NVIDIA with its Tegra 2 apps processors and Icera with its 3G / 4G soft modem basebands. 
 
We've assessed both Icera and NVIDIA's strategies and technologies in reports earlier this year and feel that both companies have a perfect set of assets to serve the high-end mobile device markets. 
 
By our estimates, Icera had less than 1 percent unit shipment and revenue share in the cellular baseband market in 2010. However, Icera is one of the prominent players in the mobile broadband market, in particular the U.S. market. Icera’s soft modem basebands gained good traction among European and North American wireless operators in 2010 and the company is one of only a few that has market-ready HSPA+ / LTE basebands. Icera supplies W-CDMA / HSPA / HSPA+ basebands for embedded and detachable mobile broadband modem devices. The company currently has no share in handsets but is on track to ship its first voice-supported baseband modem by Q4 2011. 
 
Icera's acquisition still leaves some holes in NVIDIA's cellular strategy:

• The two companies indicated that baseband-integration in Tegra processors is a long-term goal and could take time. We regard this situation as similar to Intel-Infineon’s and think it could take 3-4 years for both Intel and NVIDIA to field baseband-integrated apps processors.

• NVIDIA may have to acquire a few more companies to fill the connectivity gap in its product portfolio and to position itself as a complete platform player like Qualcomm, ST-Ericsson and Broadcom. Neither NVIDIA nor Icera offer any connectivity solutions such as Bluetooth, Wi-Fi, GPS, FM radio, NFC or ZigBee.
  

• We think it's critical for NVIDIA to address every single price point to gain volume to match Qualcomm. Qualcomm currently has the broadest portfolio of processors to address various price points. In the near-to-medium term, we don't expect any impact on Qualcomm’s market share from this acquisition. However, given Icera's strong modem capabilities, the NVIDIA-Icera combination could be a potential long-term threat to Qualcomm.

This acquisition leaves Altair Semi and Sequans as the most significant potential acquisition targets for vendors looking to expand into the 4G mobile devices market.